Store Electronic Systems: An E-Ink Pure Play

In a previous article, we discussed electronic ink or E-ink and how its usage will decline as the demand for e-readers declines. On the other hand, applications such as “electronic shelf labels (ESLs)” for use in retail “bricks-and-mortar” storefronts are expected to more than offset this decline. ABI Research issued a report recently titled “Next Gen Retail: Electronic Shelf Labels” in which they forecasted that revenues will increase almost six-fold in the next 5 years to almost US$2 billion by 2019. In that same report, two companies were mentioned as major players that are dominating traditional ESL markets; Pricer and Store Electronic Systems (SES).

About Store Electronic Systems (SES)

French- company Store Electronic Systems (EPA:SESL) or SES designs and markets electronic shelf labeling systems for food and non-food retail industries. The Company currently trades on the Euronext Paris Exchange at a share price of $15.69 USD with a current market cap of $182 million USD. The stock is down -26% since it first started trading in 2006 and is down -16% year-to-date.

SES_Stock_Chart
Source: Google Finance

For over 20 years, Store Electronic Systems has been a pioneer of electronic shelf labeling for the retail sector. To date, its products and systems have been installed more than 7,000 stores in 52 countries. The below diagram best describes how the “SES system” works:

SES_Solution
Source: Store Electronic Systems

In February 2014, it was announced that SES would acquire 100% of one of their competitors, iMAGOTAG, over a two-year period. The transaction would be paid partly in cash and partly in SES shares (based on a SES share price of $19.14 USD). The below statement was made by SES about iMAGOTAG at the time of the acquisition:

In 2013, the start-up conducted a number of successful pilot installations in some of the largest retailers in German speaking countries and Central Europe, representing a high future deployment potential. Today iMAGOTAG has more than 1, 000 installations in 5 countries and has built a strong sales funnel.

SES’s Revenues

53% of SES’s revenues so far this year are from sales in France with the remainder being classified as “international”. Revenues for the company have been steadily increasing over the past 3 years as well as the number of store installations:

SES_Stores_Revenues

Edison, an investment intelligent firm that is following SES, made an estimate in March of this year that SES’s 2014 revenues would come in at $125 million USD, a target that SES does not seem likely to meet. Sales for SES in the first three quarters of 2014 have been around $72 million USD which is down 1% when compared to 2013. This means SES would need revenues in Q4 of 2014 to reach $53 million in order to hit this target. However, Edison cites the acquisition of iMAGOTAG as potentially contributing $12.5 million to SES’s 2014 revenues. With big Q4 results, the target could be achievable. SES plans to release 2014 results in January 2015. The Edison report also stated that the iMAGOTAG acquisition was a fair price since it amounted to 2X iMAGOTAG’s 2014 revenues annualized, and as a result, this acquisition could justify a share price of $22.38.

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